By Lisa A. Gennetian, Christina Gibson-Davis, and Lisa A. Keister, Image: from study, EconoFact, January 20, 2022
The Issue:
Research and policies aimed at addressing poverty tend to focus on family income. Yet, the future financial resilience of U.S. households with children will be shaped not only by the income they earn but also by their wealth holdings. Wealth is a critical resource that enables households to deal with unexpected economic shocks — including recent experiences of job loss related to the pandemic — when parents must draw on saved assets to meet the needs of their children. Wealth, like income, supports parental investments in their children and reduces family stress; wealth also can inform and direct parents’ hopes and expectations about their children’s futures. Importantly, the negative correlations between child development outcomes and wealth cannot statistically be attributed to income. Children living in households that have similar income levels but lower levels of wealth have increased risk of compromised academic outcomes — including college enrollment and college attainment — as well as greater risk of negative behavioral outcomes.
The Facts:
- Households that have scarce wealth holdings can be considered "net worth poor". In our research, we define net worth poverty as net worth levels that are less than one-fourth of the federal poverty line. This threshold measures whether a household has a stock of assets sufficient to meet its basic needs, as defined by the poverty line, for 3 months. A family of four would be classified as "net worth poor" if their wealth was less than $6,500 in 2019. Wealth, or net worth, is the value of total household assets — which typically include savings and checking accounts, retirement accounts, and the value of a family's home, among others — less total debts, such as mortgages, credit card debt, and car or educational loans.
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